THE BILATERAL NETTING OF QUALIFIED FINANCIAL  
CONTRACTS ACT, 2020 
__________ 

ARRANGEMENT OF SECTIONS 
__________ 

CHAPTER I 

PRELIMINARY 

SECTIONS 

1.  Short title and commencement. 
2.  Definitions. 

3.  Applicability of Act. 
4.  Powers of authority. 
5.  Enforceability of netting. 

CHAPTER II 
APPLICATION OF ACT  

CHAPTER III 
INVOCATION OF CLOSE-OUT NETTING 

6.  Invocation of close-out netting. 
7.  Net amount. 

CHAPTER IV 
LIMITATIONS ON POWERS OF ADMINISTRATION PRACTITIONER 

8.  Limitations on powers of administration practitioner. 

CHAPTER V 
MISCELLANEOUS 

9.  Power to amend Schedules. 
10. Provisions of this Act to override other laws. 
11. Power to remove difficulties. 
THE FIRST SCHEDULE. 
THE SECOND SCHEDULE. 

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THE BILATERAL NETTING OF QUALIFIED FINANCIAL  

CONTRACTS ACT, 2020  

ACT NO. 30 OF 2020 

An  Act  to  ensure  financial  stability  and  promote  competitiveness  in  Indian  financial 
markets by providing enforceability of bilateral netting of qualified financial contracts and for 
matters connected therewith or incidental thereto. 

BE  it  enacted  by  Parliament  in  the  Seventy-first  Year  of  the  Republic  of  India  as 

follows:— 

[28th September, 2020.] 

CHAPTER I 

PRELIMINARY 

1. Short title and commencement.—(1) This Act may be called the Bilateral Netting of Qualified 

Financial Contracts Act, 2020. 

(2) It shall come into force on such date1 as the Central Government may, by notification in the 
Official Gazette, appoint, and different dates may be appointed for different provisions of this Act. 

2. Definitions.—(1) In this Act, unless the context otherwise requires,— 

(a)  “administration”  means  proceedings  of  the  nature  of  placing  under  administration  and 
includes  imposition  of  moratorium,  reorganisation,  winding  up,  liquidation  (including  any 
compulsory  winding  up  procedure  or  proceeding),  insolvency,  bankruptcy,  composition  with 
creditors, receivership, conservatorship or any proceedings of nature similar to or resulting in any 
of  the  foregoing,  initiated  or  commenced  under  any  law  for  the  time  being  in  force,  against  a 
qualified financial market participant; 

(b) “administration practitioner” means the liquidator, receiver, trustee, conservator, resolution 
professional or any other person or entity, by whatever name called, which administers the affairs 
of a party subject to administration under any law for the time being in force; 

(c) “authority” means the Central Government or any of the regulatory authorities as specified 

in the First Schedule; 

(d) “banking institution” means,— 

(i) scheduled bank as defined in clause (e) of section 2 of the Reserve Bank of India Act, 

1934 (2 of 1934); and 

(ii) any other bank as the Reserve Bank of India may specify; 

(e) “close-out netting” means a process involving termination of obligations under a qualified 
financial  contract  with  a  party  in  default  and  subsequent  combining  of  positive  and  negative 
replacement values into a single net payable or receivable as set out in section 6; 

(f) “collateral” means,— 

(i) money, in the form of cash, credited to an account in any currency, or a similar claim for 

repayment of money, such as a money market deposit;  

(ii) securities of any kind, including debt and equity securities; 

(iii) guarantees, letters of credit and obligations to reimburse; and 

(iv) any asset commonly used as collateral under any law for the time being in force; 

1. 1st October, 2020, vide notification No. S.O. 3463(E), dated 1st October, 2020 see Gazette of India, Extraordinary, Part 
II, sec. 3 (ii). 

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(g)  “collateral  arrangement”  means  any  margin,  collateral  or  security  arrangement  or  other 
credit  enhancement  related  to  or  forming  part  of  a  netting  agreement  or  one  or  more  qualified 
financial contracts to which a netting agreement applies, and includes,— 

(i) a pledge or any other form of security interest in collateral, whether possessory or non-

possessory; 

(ii) a title transfer collateral arrangement; and  

(iii)  any  guarantee,  letter  of  credit  or  reimbursement  obligation  by  or  to  a  party  to  one  or 
more qualified financial contracts, in respect of those qualified financial contracts; or a netting 
agreement; 

(h)  “insolvent  party”  means  the  party  to  a  qualified  financial  contract  in  relation  to  which 
insolvency,  winding  up,  liquidation,  resolution,  administration  or  similar  proceedings  have  been 
instituted under any law for the time being in force in India or under the laws of any other country, 
including of its incorporation; 

(i) “margin” means the amount, form and type of collateral required as a performance bond for 

the purchase, sale or carrying of a qualified financial contract and includes— 

(A)  initial  margin  which  protects  the  transacting  parties  from  potential  future  exposure 
likely  to  arise  from  future  changes  in  the  mark-to-market  value  of  the  qualified  financial 
contract during the close-out and replace the position in the event of counterparty default; and 

(B) variation margin which protects the transacting parties from the current exposure that 
has already been incurred by one of the parties from changes in the mark-to-market value of 
the qualified financial contract after the transaction has been executed; 

(j) “netting” means determination of net claim or obligations after setting off or adjusting all the 
claims  or  obligations  based  or  arising  from  mutual  dealings  between  the  parties  to  qualified 
financial contracts and includes close-out netting; 

(k) “netting agreement” means an agreement that provides for netting, and includes,— 

(i)  an  agreement  that  provides  for  the  netting  of  amounts  due  under  two  or  more  netting 

agreements; and 

(ii) a collateral arrangement relating to or forming part of a netting agreement; 

(l)  “non-insolvent  party”  means  the  party  to  a  qualified  financial  contract  that  is  not  the 

insolvent party; 

(m) “notification” means a notification published in the Official Gazette and the term “notify” 

shall be construed accordingly; 

(n) “qualified financial contract” means a qualified financial contract notified by the authority 

under clause (a) of section 4; 

(o) “qualified financial market participant” includes,— 

(i)  a  banking  institution,  or  a  non-banking  financial  company,  or  such  other  financial 
institution  which  is  subject  to  regulation  or  prudential  supervision  by  the  Reserve  Bank  of 
India; 

(ii) an individual, partnership firm, company, or any other person or body corporate whether 
incorporated under any law for the time being in force in India or under the laws of any other 
country and includes any international or regional development bank or other international or 
regional organisation; 

(iii)  an  insurance  or  reinsurance  company  which  is  subject  to  regulation  or  prudential 
supervision by the Insurance Regulatory and Development Authority of India established under 
the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999); 

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(iv) a pension fund regulated by the Pension Fund Regulatory and Development Authority 
established  under  the  Pension  Fund  Regulatory  and Development  Authority  Act,  2013 (23 of 
2013) ; 

(v) a financial institution regulated by the International Financial Services Centres Authority 
established  under  the  International  Financial  Services  Centres  Authority  Act,  2019  (50  of 
2019); and 

(vi) any other entity notified by the relevant authority under clause (b) of section 4; 

(p) “Schedule” means the First Schedule or the Second Schedule to this Act; 

(q)  “title  transfer  collateral  arrangement”  means  a  margin,  collateral  or  security  arrangement 
related to a netting agreement based on the transfer of title to collateral, whether by outright sale or 
by  way  of  security,  including  a  sale  and  repurchase  agreement,  securities  lending  agreement, 
securities, buy or sell-back agreement or an irregular pledge. 

(2) Words and expressions used but not defined in this Act and defined in the Reserve Bank of 
India  Act,  1934  (2  of  1934),  the  Insurance  Act,  1938  (4  of  1938),  the  Banking  Regulation 
Act,1949 (10 of 1949), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Banking 
Companies  (Acquisition  and  Transfer  of  Undertakings)  Act,  1970  (5  of  1970),  the  Banking 
Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), the Securities and 
Exchange Board of India Act,1992 (15 of 1992), the Foreign Exchange Management Act,1999 (42 
of  1992),  the  Insurance  Regulatory  and  Development  Authority  Act,  1999  (41  of  1999),  the 
Payment and Settlement Systems Act, 2007 (51 of 2007), the Companies Act, 2013 (18 of 2013) 
the  Pension  Fund  Regulatory  and  Development  Authority  Act,  2013  (23  of  2013)  and  the 
Insolvency  and  Bankruptcy  Code,  2016  (31  of  2016),  shall  have  the  meanings  respectively 
assigned to them in those enactments. 

CHAPTER II 

APPLICATION OF ACT 

3. Applicability of Act.—The provisions of this Act shall apply to a qualified financial contract 
entered into on a bilateral basis between qualified financial market participants, either under a netting 
agreement  or  otherwise,  where  at  least  one  of  such  participants  shall  be  an  entity  regulated  by  an 
authority specified in the First Schedule. 

4. Powers of authority.— The relevant authority may, by notification,— 

(a) designate any bilateral agreement or contract or transaction, or type of contract regulated by 

it, as qualified financial contract: 

Provided that the contract, so designated under this clause, shall not include any contract,— 

(i) entered into between such parties and on such terms as the Central Government may, by 

notification, specify; or 

(ii)  entered  into  on  multilateral  basis  in  accordance  with  the  provisions  of  the  Securities 
Contracts (Regulation) Act, 1956 (42 of 1956) and the Payment and Settlement Systems Act, 
2007 (51 of 2007); 

(b)  specify  any  entity  regulated  by  it,  as  a  qualified  financial  market  participant  to  deal  in 

qualified financial contracts. 

5.  Enforceability  of  netting.—(1)  Netting  of  the  qualified  financial  contract  shall  be 

enforceable— 

(a) where such contract is entered into with a netting agreement, in accordance with the terms 

of the netting agreement: 

Provided that the inclusion of any non-qualified financial contract in a netting agreement shall 
not invalidate the enforceability of netting of qualified financial contract under such agreement; or 

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(b)  where  such  contract  is  entered  into  without  a  netting  agreement,  in  accordance  with  the 

provisions of section 6. 

(2) A qualified financial contract shall not be void and shall be deemed never to have been void or 

unenforceable by reason of any law for the time being in force.  

(3)  Close-out  netting  of  a  qualified  financial  contract  shall  be  enforceable  against  an  insolvent 
party, and, wherever applicable, against a guarantor or other person providing collateral or security for 
a party and shall not be affected or stopped or otherwise limited by:— 

(i) the appointment of, or any application for the appointment of, an administration practitioner, 

or 

(ii) applicability of any provision of law relating to administration, or 

(iii) any other provision of law that may be applicable to an insolvent party 

(4)  Where  a  qualified  financial  market  participant 

is  subject 

to  administration, 

then 

notwithstanding,— 

(i) any stay, injunction, avoidance, moratorium or similar proceedings or any other order of a 

court, tribunal or authority, or 

(ii) any order of adjudication or dissolution or winding up or resolution or insolvency, or 

(iii) any rule, regulation, scheme, direction, guideline, circular or order, 

made  or  issued  under any  law  for the  time  being  in  force,  close-out  netting  shall  be  applicable  and 
nothing contained therein shall affect the validity of close-out netting under this Act. 

(5) The amount payable or other claims to be made in accordance with the close-out netting under 
this Act shall be final, irrevocable and binding upon the parties to a qualified financial contract and 
upon the administration practitioner, of the party in administration. 

CHAPTER III 

INVOCATION OF CLOSE-OUT NETTING 

6. Invocation of close-out netting.— (1) Close-out netting may be commenced by a notice given 
by  one  party  to the  other party  of  a qualified  financial  contract  upon the  occurrence  of  an  event  of 
default with respect to the other party or a termination event that may, in certain circumstances, occur 
automatically as specified in the netting agreement: 

Provided that where any one of the parties to a netting agreement is subject to administration, then 
no  prior  notice  to  or  consent  of  the  party  in  insolvency,  winding  up,  liquidation,  administration  or 
resolution proceeding, or to the administration practitioner of such proceeding, shall be required. 

Explanation.—For the purposes of this sub-section,— 

(i)  “event  of  default”  means  failure to  pay  or deliver  or  honour the  obligations of  a  qualified 
financial contract, or bankruptcy, or any other event as may be agreed upon by the parties in the 
agreement; and 

(ii) “termination event” means the occurrence of any event mentioned in the netting agreement 

which gives one or both parties the right to terminate relevant transactions under that agreement. 

(2) The parties to a qualified financial contract shall ensure that all obligations owed by one party 
to another party under a qualified financial contract are reduced to or replaced with single net amount 
which has the following effect, namely:— 

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(a)  the  termination,  liquidation  or  acceleration  of  any  present  or  future  payment  or  delivery 
rights  or  obligations  arising  under  or  in  connection  with  any  one  or  more  qualified  financial 
contracts to which a netting agreement applies; 

(b)  the  calculation  or  estimation  of  a  close-out  value,  market  value,  liquidation  value  or 
replacement  value  in  respect  of  each  right  and  obligation  or  group  of  rights  and  obligations 
terminated, liquidated or accelerated under clause (a) and the conversion of each such value into a 
single currency; and 

(c) the determination of the net balance of the values calculated under clause (b), whether by 
operation of set-off or otherwise, giving rise to the obligation of one party to pay an amount equal 
to the net balance to the other party. 

(3)  Without  prejudice  to  the  provisions  of  any  law  for  the  time  being  in  force  requiring  the 
realisation, appropriation or liquidation of collateral, and unless otherwise agreed by the parties, the 
realisation, appropriation or liquidation of collateral under a collateral arrangement shall take effect 
without any requirement of prior notice to, or consent from, any party, person or entity. 

(4)  Close-out  netting  shall  be  applicable  to  all  qualified  financial  market  participants  who  are 
parties to a qualified financial contract notwithstanding anything to the contrary contained in any law 
specified in the Second Schedule or any other law pursuant to which any qualified financial market 
participant has been incorporated, constituted or is regulated. 

7.  Net  amount.  —(1)  Where  parties  to  the  qualified  financial  contract  enter  into  a  netting 
agreement, the net amount payable under the close-out netting shall be determined in accordance with 
the terms of the netting agreement entered into by the parties. 

(2) In the absence of the netting agreement, where the parties to a qualified financial contract fail 
to agree on the sum with regard to the net amount payable under the close-out netting, such sum shall 
be determined through arbitration. 

CHAPTER IV 

LIMITATIONS ON POWERS OF ADMINISTRATION PRACTITIONER 

8. Limitations on powers of administration practitioner. —The administration practitioner shall 

not render or seek to render ineffective,— 

(a) any transfer, substitution or exchange of cash, collateral or any other interests under or in 
connection with a netting agreement between the insolvent party and the non-insolvent party to a 
qualified financial contract; or 

(b) any payment or delivery obligation incurred by the insolvent party and owing to the non-
insolvent party under or in connection with a netting agreement on the grounds of it constituting a 
preference  including  a  fraudulent  preference  or  a  transfer  for  undervalue,  including  during  a 
suspect period by the insolvent party to the non-insolvent party. 

Explanation.—For the purposes of this clause, “suspect period” means the relevant period referred 
to  in  sub-section  (4)  of  section  43  of  the  Insolvency  and  Bankruptcy  Code,  2016  (31  of  2016)  in 
respect of “preferential transaction” and in sub-section (1) of section 46 of the said Code in respect of 
“undervalued transaction”. 

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CHAPTER V 

MISCELLANEOUS 

9. Power to amend Schedules. —(1) If the Central Government is satisfied that it is necessary or 
expedient so to do, it may, by notification, add to or otherwise amend the First Schedule or the Second 
Schedule  and  thereupon,  the  First  Schedule  or  the  Second  Schedule,  as  the  case  may  be,  shall  be 
deemed to have been amended accordingly. 

(2)  Every  notification  issued  under  sub-section  (1)  shall  be  laid,  as  soon  as  may  be  after  it  is 
issued, before each House of Parliament while it is in session, for a total period of thirty days which 
may be comprised in one session or in two or more successive sessions, and if, before the expiry of 
the session immediately following the session or the successive sessions aforesaid, both Houses agree 
in making any modification in the notification or both Houses agree that the notification should not be 
issued, the notification shall thereafter have effect only in such modified form or be of no effect, as 
the case may be; so, however, that any such modification or annulment shall be without prejudice to 
the validity of anything previously done under that notification. 

10. Provisions of this Act to override other laws.— The provisions of this Act shall have effect, 
notwithstanding anything inconsistent therewith contained in any other law for the time being in force 
or any instrument having effect by virtue of any such law. 

11. Power to remove difficulties.— (1) If any difficulty arises in giving effect to the provisions of 
this  Act,  the  Central  Government  may,  by  order,  published  in  the  Official  Gazette,  make  such 
provisions  not  inconsistent  with  the  provisions  of  this  Act  as  may  appear  to  it  to  be  necessary  or 
expedient for removing the difficulty: 

Provided that no order shall be made after the expiry of a period of three years from the date of 

commencement of this Act. 

(2) Every order made under this section shall be laid, as soon as may be after it is made, before 

each House of Parliament. 

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THE FIRST SCHEDULE 

[See sections 2(1) (c), (p) and 9(1)] 

Sl. No 
(1) 
1. 

2. 

3. 

4. 

5. 

Name of the authority 
(2) 
The Reserve Bank of India, established under section 3 of the 
Reserve Bank of India Act, 1934. 
The Securities and Exchange Board of India, established under 
section  3  of  the  Securities  and  Exchange  Board  of  India  Act, 
1992. 
The  Insurance  Regulatory  and  Development  Authority  of 
India, established under section 3 of the Insurance Regulatory 
and Development Authority Act, 1999. 
The  Pension  Fund  Regulatory  and  Development  Authority, 
established  under  section  3  of  the  Pension  Fund  Regulatory 
and Development Authority Act, 2013. 
The 
International  Financial  Services  Centres  Authority 
established  under  section  4  of  the  International  Financial 
Services Centres Authority Act, 2019. 

Act No. 
(3) 

2 of 1934. 

15 of 1992. 

41 of 1999. 

23 of 2013. 

50 of 2019. 

8 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THE SECOND SCHEDULE 

[See sections 6(4) and 9(1)] 

Sl. No 
(1) 
1. 
2. 
3. 
4. 
5. 
6. 

7. 
8. 

9. 
10. 
11. 

12. 
13. 
14. 

15. 

Name of the enactment 
(2) 

Act No 
(3) 

The Reserve Bank of India Act, 1934. 
The Insurance Act, 1938. 
The Banking Regulation Act, 1949. 
The State Bank of India Act, 1955. 
The Securities Contracts (Regulation) Act, 1956. 
The  Banking  Companies  (Acquisition  and  Transfer  of 
Undertakings) Act, 1970. 
The Regional Rural Bank Act, 1976. 
The  Banking  Companies  (Acquisition  and  Transfer  of 
Undertakings) Act, 1980. 
The Securities and Exchange Board of India Act, 1992. 
The Foreign Exchange Management Act, 1999. 
The  Insurance  Regulatory  and  Development  Authority  Act, 
1999. 
The Payment and Settlement Systems Act, 2007. 
The Companies Act, 2013. 
The  Pension  Fund  Regulatory  and  Development  Authority  23 
of 2013 Act, 2013. 
The Insolvency and Bankruptcy Code, 2016. 

2 of 1934. 
4 of 1938. 
10 of 1949. 
23 of 1955. 
42 of 1956. 
5 of 1970. 

21 of 1976. 
40 of 1980. 

15 of 1992. 
42 of 1999. 
41 of 1999. 

51 of 2007. 
18 of 2013. 
23 of 2013. 

31 of 2016. 

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